Every cent is sacred (reflections on budgeting)
Since we’ve been married, Mike and I have occasional “budget” meetings which typically consist of getting amped up on a lot of rounds of coffee, typing numbers into Excel spreadsheets (not the most sophisticated software program, admittedly), and coming up with savings goals for any and everything we can think of.
Let me start off by saying how grateful I am for my husband.
When I first met Mike I wasn’t exactly the most frugal person in the world. I didn’t understand the value of money (or really care much either way). I made good money waitressing in college and didn’t save a cent of it. I have no idea where hundreds, or rather thousands, of hard-earned dollars went. I shopped with no goal in mind. When I was working full-time in teaching, same story. I was the person (I have no idea why this illustration comes to mind) meandering through Whole Foods buying anything I felt like – think, pre-cut $8 fruit and pre-made meals that actually cost more than going out to eat. I didn’t think twice about it.
Not until we started saving for our wedding (which in and of itself was an exercise in frugality – we eloped and had a reception in my parents’ back yard at a fourth of the cost of the average wedding) did I start to fully realize the power of money. And how satifsying it is to save, to pay off debts, and to think big in terms of your financial future.
Let me also provide a disclaimer that we aren’t rich, that our goal isn’t to become madly wealthy, and that I certainly don’t know everything there is to know about this. There’s still a lot to learn.
Some of you reading may already be fully in control of your finances and be rolling your eyes. For the rest of you – I felt like blogging on this because I went from feeling absolutely clueless (and apathetic) five years ago to fully empowered today, and during that time span I was eager to read on the topic for ideas and motivation. I count this among the best five things that has happened to me in my adult life. So here you go – here are some thoughts on the matter.
Start a budget. If you haven’t already, start tracking your expenses every month. Track everything, even down to the $3 coffee you buy every other day. After several months some trends will start to emerge (and you’ll likely be shocked at how much you’re spending in certain areas, while under-spending in others). For me it’s often shocking to see our going out to eat budget skyrocket while groceries expenses are insanely low. (Those things are inversely proportional!) Track it in Excel if nothing else. Once you have a handle on what you’re spending, set goals for the month in each category, and make them reasonable. Like in any other area of life, deprivation doesn’t work. Check in weekly to see if you’re on track with your goal. If you’re over-budget – stop spending. Period. Set limitations (even if you HAVE the money – pretend as if you don’t) and get in the habit of abiding by them.
Set savings goals. There’s nothing more motivating for me than knowing that you’re saving for a reason – be it a wedding, a house, a car payment, a vacation, etc. Among your monthly goals, set a savings goal, aiming for 10% of your income and going higher if you’re able to. Once you begin to look at what that means yearly (or in five years) it’s exciting. Nearly everything you need becomes affordable, and it certainly puts into perspective things that you want (but don’t need).
Cut out non-essentials. And treat small expenditures like they matter. Examples of this – for me at least – include going to Starbucks, going out to lunch, eating out, buying books you could otherwise get at the library, buying music, clothes, buying expensive/brand name makeup/hair supplies, etc. that you can get for a cheaper price, etc. This is different for everyone. Sometimes it seems silly setting external limits here – for instance, Mike and I have set a goal of going out to lunch weekly and buying coffee weekly (at most; on good weeks we buy no coffee), and we check in with each other before buying most things beyond our normal expenditures. Yearly, these things can add up to thousands of dollars.
Some things are worth spending the money on. But most things aren’t. Do research on it. To use a stupid example – name brand shampoo matters less than conditioner. Same with mascara. There really isn’t much difference if you spend $3 or $20, but the same isn’t true for certain products. Find out which things are worth spending full price for.
Menu plan. I’m historically bad at this. When produce sits in our fridge and rots it makes me realize I have a long way to go in this category. During the weeks that we menu plan, however – and refuse to buy any food that doesn’t match that plan – no food goes to waste. We have enough for leftovers, for lunch, and we feel good about cooking, eating healthfully, and not being wasteful.
Tap into what motivates you. For me it took a lot of reflection on why I was scared to think about money, to track my spending, etc. Money can conjure many negative emotions in our culture. Sometimes even thinking about it makes us feel guilty (maybe we know intuitively we’re being careless, spending more than we have, or buying things we don’t need). For me – there are several top motivators (aside from reaching my savings’ goal):
- the environment (buy reused furniture, shop at thrift stores);
- being able to donate to those in need (any time I feel deprived or start wishing I could spend on something unnecessary I’m reminded of how much we have compared to people around the world and even in our own community – I don’t suggest you should feel guilty here – rather, really tap into the community around you and make spending decisions out of a place of gratitude, not entitlement);
- think about your kids’ futures (a HUGE reason I’m motivated to save money toward cutting a large check toward my student loan at the end of each year is that that I can start saving for their college).
There are lots of other motivators. Cooking and spending more on groceries (instead of eating out) will likely help you reach fitness goals and become healthier. Going out less forces you to be more creative and find innovative ways to spend quality time with your loved ones. The list goes on.
Stop using credit cards. This one is sure to strike a nerve. I understand that credit cards “build credit” and that if you pay them off monthly it’s worth doing, etc. Most people, however, use credit to buy things they currently don’t have money for. If you don’t have money for something – unless it’s a matter of life and death – don’t buy it. Period. (This skit from SNL is just awesome: “Don’t Buy Stuff You Can’t Afford.”)
Also – if you’re interested in living life without credit cards – even the benign kind of credit card used to pay off normal monthly expenditures – know that it’s fine to do so. Mike and I have no credit cards. Despite warnings from people that we wouldn’t be able to build credit, we did our research and realized that between car payments, rent payments, and years’ worth of student loan payments – we had more than enough evidence to build credit. We were just approved for a mortgage. If you choose to have credit cards responsibly, that’s fine too. But know that in most instances the argument that you HAVE to have them is a total myth.
Prioritize paying off debt, even good debt. Part of our savings goal is to pay an extra house payment (or two) per year and write checks to the student loan companies at the end of each year. Do this instead of buying yourselves massive amounts of Christmas presents. Or – think about the money you save on non-essentials as going toward this and toward getting yourself out of student loan debt and your mortgage years earlier than planned.
Don’t buy things you don’t need. This goes without saying, and I’ve mentioned it throughout the post. But beyond not buying clothes and vanilla lattes every other day, I’m also talking about big expenses like tvs, cars, cameras, and “toys.” I’ll be the first to admit it’s hard not to spend in this category. Who doesn’t want an iPad, a new laptop, and a sweet camera? Especially if you have the money sitting in the bank! I can tell you from firsthand experience, however, that having money saved is infinitely more satisfying than having the next best thing to come out on the market. Mike and I have never owned a flat screen TV (we will likely buy one soon); we have each only purchased one laptop computer (actually – Princeton paid for mine so I have never bought one), and we drive cars that are 11 and 10 years old, respectively. I plan to continue driving mine until it breaks down or becomes a safety issue.
In closing – know that it’s never too late to change habits and it doesn’t matter how much money you make. We’ve abided by these principles on one income and two, and while full-time students.
Good luck saving in 2012!